Case Law: Eon-Net LP v. Flagstar Bancorp

U.S. Court of Appeals, Federal Circuit, Affirms Sanction for Failure to Preserve Evidence

Eon-Net LP v. Flagstar Bancorp, No. 2009-1308 (Fed. Cir., July 29, 2011). In this patent litigation, the plaintiff (sanctioned party-appellant) appealed an order from the Western District of Washington that imposed sanctions for litigation misconduct. The litigation misconduct included the failure to preserve and the destruction of documents. Indeed, the principal of the plaintiff organization testified that “I don’t save anything so I don’t have to look” and also testified that we “have adopted a document retention policy which is that we don’t retain any documents” because the companies have “evolved into patent enforcement companies which are involved in the business of litigation.” Pursuant to this document retention ideology, all documents were destroyed from a relevant infringement action despite being potentially responsive to other cases. Based on this misconduct, the Court of Appeals affirmed the award of almost $500,000 in attorney fees.

Commentary

As reported by Mark Michels of Law Technology News, the Court of Appeals for the Federal Circuit recently affirmed sanctions imposed by the Western District of Washington following litigation misconduct that included the failure to preserve and destruction of documents. Other litigation misconduct included failing to engage in the claim construction process in good faith, lodging incomplete and misleading intrinsic evidence with the court and submitting declarations that contradicted earlier deposition testimony.

Interestingly, the Federal Circuit discussed that the plaintiff had the ability to impose “disproportionate discovery costs” on the defendant based on the potentially “enormous” amounts of potentially relevant documents. Further, the court noted the Federal Rules of Civil Procedure and traditionally liberal notions of discovery often result in an accused infringer producing millions of pages from numerous repositories and custodians, with the costs generally borne by the producing party, referring to Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 358 (1978).

Clearly the plaintiff’s document retention policy is ill-advised at best. At worst, it contributed to an award of sanctions of nearly $500,000 in attorney fees. In this modern day of exponential growth in data volumes, it is hard for companies to strike the right balance between preserving everything and saving nothing. Over-retention does pose significant risks; however, it is possible to manage information in an effective manner. First, companies must determine retention periods and create record retention schedules that dictate how long each record classification should be preserved. Once it’s determined what should be maintained, the next step is deciding it should be maintained or destroyed. The retention policy should also be clearly communicated to all employee levels while strictly adhering to the policy.

Further, we recommend companies institute archiving solutions to ensure and assist with the following: regulatory compliance and corporate governance, operational efficiency, and litigation readiness and investigations. When considering what archiving solution is right for your company, research what features and options are most desirable. In addition, consider whether the archive can be used for ediscovery and how it interfaces with any existing ediscovery tools you may have installed in the organization. Also, ask whether there are considerations included in the contract for assistance with discovery. These questions merely touch the surface of the due diligence an organization should use in researching and vetting an archiving solution. Companies do not have to conduct this process alone. Seek out the help of a consultant who can provide valuable, trusted assistance in ensuring your organization makes the right choice from the beginning.